Notes from the Forest, June 16th

Ladies and Gentlemen:

The lumber and panels markets this week reminded me of an old TV commercial.  “You know you want it. . . You know you need it”, but for the most part buyers stuck to their script; buying hand to mouth and nothing significant beyond that.  Producers noticed that as the week progressed that more buyers in the marketplace, usually just kicking tires, checking on price and availability but some of those conversations led to sales later in the week and the transaction was conducted close to previously quoted levels.  As producers begin filling out their order files for the remaining weeks of June, buyers are going to have to make some important inventory decisions. . .  and the mills know that too.  

While we were on our holiday hiatus the National Association of Realtors® reported that their April 2017, Pending Home Sales Index (PHSI), which is a forward-looking indicator which is based on contract signings, not actual closing transactions slumped for the second consecutive month, and were down year-over-year nationally, in all four major regions. The PHSI, decreased <-1.3%> to 109.8 in April from a downwardly revised 111.3 in March. After last month's decline, the index is now <-3.3%> below a year ago, which is the first year-over-year decline since last December and the largest since June 2014, which was <-7.1%>.  The Department of Commerce reported that spending on construction sagged in April, as a strong start the year has suddenly started to falter. Construction outlays ran at a seasonally adjusted annual rate of $1.22 trillion, <-1.4%> lower than March. Economists surveyed by MarketWatch had forecast a 0.5% increase in April.

Spruce & Stud Markets-:  Inspired by a spike in CME Lumber Futures late last week, and again on Tuesday, Wednesday and Thursday; traders were hoping that the inquiry and sales pace of Eastern & Western Canadian SPF Std., & Btr., and No. 2 Btr., would move towards a more traditional June sales pattern. However, as early as Monday morning it was apparent that buyers were not going to be persuaded to change their current pattern of purchasing hand to mouth.  At least not quite yet.  As sales trailed production, mills resorted to offering modest discounts, particularly on over stocked items in truckloads, and deeper discounts for carload volume buyers. By midweek several mills were debating whether lowering prices would provide them any additional business, beyond what buyers would have purchased out of need. Several producers did in fact firm their price levels over the remainder of the week.  Sales of low grade stock and stud trims also remain below traditional seasonal levels and even after last week’s significant price adjustment, additional discounts, although minor, were required again this week. 

Hem \ White Fir -:  The inquiry and sales of Coastal and Inland White and Hem \ Fir remains highly species and location driven. Coastal sales remain in a funk, and buyers continue to purchase hand to mouth and little beyond that.  As a result, sales are not keeping up with production and producers continue to struggle to find a trading level that will get buyers to reengage with the markets.  Inland sales of Fir-Larch have been described all week as good, to sneaky strong. Hem-Fir sales continue to lag but traders noted towards the end of the week that they thought the Hem-Fir markets might be coming close to finding a soft bottom. Canadian SPF production continues to eat away at the market share of both domestic Coastal and Inland Fir products. It was another week where sale of stud trims and low grade seemed to fair better than construction grade materials. As a result, prices traded within a few dollars of previously established levels.

Green Doug Fir -: The inquiry and sales pace of Green Douglas Fir Std. & Btr., & No. 2 & Btr., was heavily biased to the narrow widths this week, as truss manufactures and pro dealers in California replenished their depleted inventories.  Prices on narrow widths were flat to modestly higher at midweek and those prices held through the remainder of the week.  On the other side of the market, wider widths – 2x10 & 2x12 experienced a dearth of sales, prices were down double digits at midweek and continued to move lower, as producers struggled to find an acceptable trading level that would encourage buyers to purchase volume.  The inquiry and sales of low grade have been unable to regain the magic of late March and early April.  Prices moved modestly lower again this week as mills worked diligently to keep these items from becoming an on-ground inventory burden.  Sales of stud trims remain lockstep with production and prices held steady.

Cedar Lumber -:  The inquiry and sales pace of Western Red Cedar (WRC) boards, fencing, dimension, radius edge decking, bevel siding, timbers and pattern stock, remain well below traditional mid-June levels.  Nevertheless, retail and secondary purchases have been strong enough to support the current pricing structure, and on some items, such as timbers and anything related to fencing, to move them modestly higher. It is being reported that log availability is starting to improve. Many traders believe that there will be additional supplies available as early as mid-July.  That has sparked concerns that additional available inventory might lead to a price correction, which has many buyers who have already bought holding their collective breath, and those who need to buy standing on the sidelines waiting to see what happens next. After spending copious hours discussing the Countervailing Duty, traders noted that there has been limited discussion on the upcoming Anti-Dumping ruling due out on Friday 23rd June.

Shake & Shingles -:  The inquiry and sales pace of Western Red Cedar (WRC) Shake and Shingles remains significantly below traditional trading levels for mid-June.  Retail buyers continue to report a dearth of new WRC inquiries; noting that many of their customers have embraced alternative products, that are less costly and that can ship on time.  Producers continue to report that the Freshet on the Frasier River seems never ending, and as a result, prices for raw materials, as well as transportation remain elevated. The mills say, this is the reason that prices remain at their high levels.  Producers’ further suggest that lowering prices at this time would probably not bring them any additional sales. As the week closed producers were hoping for some significant storm damage; while retail buyers were hoping for a steep cut in pricing, to get the markets jumpstarted.

Southern Pine Lumber -: The inquiry and sales pace of Southern Pine No. 1 & No. 2, dimensional lumber was able to capitalize this week, on last week’s market stabilization.  Mill order files remain on the short side - in the 7 – 10-day range on most products, but overall mills were able to sell within a few dollars of last Friday’s reported price levels.  That didn’t mean that buyers in the Eastside zone didn’t take advantage of lower prices in the Central and Westside zones, purchasing delivered 2x4 and 2x10 below their zones FOB pricing.  Demand for high grade stock – D.S.S., S.S., and MSR have also stabilized and producers only offered discounts on the few items where they were significantly overstocked.  The inquiry and sales pace of small squares and timbers remains hit or miss, as producers wait for the pressure treaters to return to the market in preparation for the Canada Day and 4th of July holiday weekend. Selected lengths of 4x4, 4x6 and 6x6 are selling at previously reported levels, while other less popular lengths continue to need additional discounting to keep buyers interested. The pattern of inquiry and sales established early in the year for 5/4 x 6 Radius Edge Decking remains unchanged.  Standard Decking continues to be over produced and every week mills go to market hoping to find the magic price level that will get buyers reengaged in the marketplace and willing to purchase volume.  Premium sales continue to gain momentum and mills have modest order files, and prices continue to edge higher week after week.

Pressure Treated -:   Lead by the large box stores preparing for what they hope is going to a spectacular long Canada Day \ 4th of July holiday; the inquiry and sales pace of pressure treated lumber, plywood and accessories picked up in the later days of the week.  After several weeks of heavy rain in Texas and the South, jobsites have finally dried out to the point that construction activity is returning to close to normal levels.  As a result, pro dealers, in all regions, were returning back to the marketplace, as delayed package shipments have finally been sent out. Recent softness is the cost of brite feedstock, did have buyers in a ‘catch-22’ situation; not wanting to buy while the market still had some downward price pressure, but not wanting to wait so long that there were inventory outages.  Trucking issues continue to frustrate buyers who are dealing with pressure treaters that do not have their own dedicated fleet of delivery trucks.  

OSB & Veneer Panels Overview -:  The inquiry and sales pace of OSB and plywood picked up modestly over the course of the week. Overall buyers continue to purchase hand to mouth.  No one purchased exceptionally large volumes but enough truckloads and carloads were sold over the course of the week that mills were able to extend order files into the weeks of 6/19 – 6/26, and in OSB somewhat beyond.  Transportation issues have become highly regionalized, with the South and Texas still experiencing the most difficulty in sourcing trucks and railcars.

OSB -:  The inquiry and sales pace of OSB were highly regionalized this week.  Overall the markets have started to show some signs of stabilizing; with many traders reporting that they felt as if the markets are closing in on a soft bottom.  Nevertheless, buyers continue to purchase hand to mouth and remain confident that if they maintain an inventory level of 14 – 21 days they will not have difficulty in sourcing additional materials weekly. Depending on the mill, shipments are being quoted from 6/19 – 6/26, to as far out as the week of 7/24.   Secondaries with contract ownership reported selling that ownership was less stressful this week, than they have been in the previous 3 – 4 weeks. Producers in the South and Texas continue to report sporadic shipment delays due to a lack of both trucks and railcars.

Southern Pine Panels -: The inquiry and sales pace of Southern Pine Rated Sheathing showed modest signs of improvement over the course of the week.  Early in the week buyers were in the market kicking tires, looking for updated pricing and availability from the mills, secondaries, and along the East Coast importers. By midweek many of those inquiries had become bonafide orders; sold at last Friday’s established price levels.  Mill are quoting shipment for the weeks of 6/19 – 6 /26.  Early in the week, producers seemed content with holding prices and building order file.  As the week progressed, however, a few mills did try, with some success, to push prices a few dollars higher. Sales of Mill Certified products continue to accelerate and price increases – double digits on some items –the Mill Cert markets are rock ‘n’ rolling. The inquiry and sales pace of underlayment, sanded, and concrete form and other specialty panels have stabilized and mills have established short order files and prices are unchanged from last Friday.

Western Fir Panels -:  The inquiry and sales of Western Fir Rated Sheathing are being described by traders as modestly improved.  Buyers on the West Coast continue to purchase their most pressing needs, in highly mixed truckloads, but showed very little interest in purchasing additional inventory.  The saving grace to the markets this week was the return of the carload volume buyers in the Midwest and Northeast, who were looking to cover early to mid-July needs. The volume that the mills sold this week allowed them to quickly fill the week of 6/12, and order files are now firmly into the week of 6/19, with a few mills opening sales up for the week of 6/26 late in the week.  Mills started the week quoting from last Friday’s established price levels, but as sales increased, a few producers attempted to push prices a few dollars higher, but with limited success. The sales of underlayment, sanded, siding, concrete form and other specialty panels remain solid and order files range in the 7 – 10-day range.  As a result, prices held at previously reported levels.

Food for Thought -:  The art of negotiating against yourself . . .   First of all, let me say “I get it.”  I know no matter how good times are, that every sale is important. We talk about firing our customers, but for the most part, unless they are totally impossible year in, year out, we rarely do.  I know that if I know that XYZ company is my best customer, that they know it too.  I know right now that your competition, could be brick and mortar, or an online store, staffed from overseas, with a huge warehouse somewhere in the middle of nowhere and shipping all over North America.  They would like the XYZ account, as much as I wouldn’t mind having their ABC or any other letters in the alphabet.

I’ve heard it time and time again, my margins seem to be shrinking but my overhead costs for labor, insurance, taxes, and other services seem to be going up and up.  I need a minimum of ‘X” for stay in business but my customers, particular my better customers, can’t seem to place an order without saying they can buy it elsewhere for less.  I can’t afford to lose their business so I capitulate.  Whoa!  Let’s stop right there.  Because right now you are now negotiating against yourself.  Next time instead of offering a lower price, wait to see, or ask them for a counter offer.  As you wait, remind them that (if this is true) that you offer free detailed plan take off service, waive the delivery fee if they get a majority of the rough-in package or finish package on a single delivery.  Yes, the OSB price at the big box retailer maybe below yours, but: 1) that’s a loss leader, 2) they charge for delivery, 3) they don’t have knowledgeable staff that you’ve come to depended on our store.  You might be surprised that the discount they are looking for is far smaller than what would have offered; when negotiating against yourself offer.

When dealing with your best customer, or in fact any customer try these simple rules. 

  • Don’t start the conversation with preconceived notions.   Although most of us do.
  • Listen to what is being said from start to finish.  Don’t interrupt, let them get it all out into the open. 
  • Watch – if they are in store their body language – or again listen to their voice, are they acting certain or just hoping you will give in again.
  • Ask questions – Who has the better price?  Is it one particular supplier on everything, or multiple suppliers, which would mean extra work for your customer to coordinate all of these timely deliveries.  Which you do for them now.
  • If the margins don’t make sense, then neither does the sale.  Selling at a loss and hoping to make it up on volume is an old and tired cliché and the best way I know to be a used to be thriving business.

Just some food for thought.

Courtesy of Joe "In the Forest" Glitman Contact Joe on Linkedin

Key Words:   Notes from the Forest